Bank of Mum and Dad wants to control how inheritance is spent

Parents are keen to keep control over how any money they leave after they die is spent by their children, new research from Prudential shows.

Rising property prices and pension wealth mean that many of the baby boomer generation plan to pass on significant assets to their heirs – and three-quarters (77 per cent) of over-55s have indicated that they want to have some control of how their legacy is spent.

One in four parents (26 per cent) are concerned that part of an inheritance could end up being given to spouses of their children in the event of a divorce. About a third (30 per cent) say they don’t want their wealth to be squandered by their children, and the same number want to ensure that grandchildren benefit from an inheritance.

One in eight parents (12 per cent) want to specify what their legacy is used for and a similar number (13 per cent) have already sought, or intend to seek, financial and legal advice to help ensure that their legacy is used wisely. One in 10 want to stipulate that their children must receive professional financial advice on receiving their inheritance.

Estates liable for inheritance tax (IHT) in the UK face an average bill of nearly £175,000 each, but more than two-thirds of over-55s (67 per cent) are unaware of what the national average inheritance tax bill is. Just one in 25 UK adults (four per cent) correctly guessed that the average bill was within the range of £100,000 and £200,000.

Despite more than a third of over-55s (35 per cent) being concerned about having to pay inheritance tax on their estate, less than a fifth (19 per cent) have actually taken action to reduce their potential tax bill. Fewer than one in 10 (nine per cent) are seeking financial advice, making gifts to family members (six per cent) and/or setting up trusts (four per cent).

Les Cameron, tax expert at Prudential, said: “Record house prices are one reason why inheritance tax receipts are rising fast. In 2012/13 fewer than 18,000 estates had an IHT bill but the Government says that there will be 41,000 taxpaying estates in 2015/16 and that IHT receipts will hit £6.2bn by 2021/22.

“Reducing inheritance tax bills is relatively straightforward. People need to strike the right balance between giving their wealth away during their lifetime to reduce the size of their estate, and maintaining some form of control after their death over who can access it and when.

“With two in five marriages ending in divorce, it is easy to understand why the problem of keeping wealth within their family is a growing concern for the bank of mum and dad when they’re planning to leave money to children and grandchildren.